Nestle Seals Ralston Deal

Swiss giant
Nestle
, the world's largest human-food company, will soon be tops in the canine and feline markets as well if its deal to buy
Ralston Purina
is completed.

Nestle said yesterday it would pay $10.3 billion for St. Louis-based Ralston Purina
, maker of Puppy Chow, Dog Chow, Meow Mix and other favorites of the four-legged set. Nestle already owns other top dog and cat brands, including Alpo and Friskies. For humans, Nestle owns Perrier, Stouffer's and the candy bars that bear its name.

Analysts said that the deal will place Nestle atop the dog-food chain in terms of market share, slightly ahead of privately held McLean, Va.-based Mars, another candy company that doubles as a pet-food maker. With annual sales of $2.76 billion, Ralston controls 27% of the pet-food market, adding to Nestle's current 12%.

The Vevey, Switzerland-based company's power over dog and cat food, and thus over dogs and cats themselves, is expected to raise concerns among antitrust regulators both in Europe and the U.S.

Nestle will pay $33.50 a share for Ralston, a 36% premium over its Jan. 12 closing price. The bid is expected to be rich enough to forestall rival offers from other pet-food makers such as
Procter & Gamble
or
Colgate
.

By combining Nestle and Ralston Purina, Nestle executives say they expect to achieve "significant operating efficiencies" in research and development, marketing, manufacturing and distribution. Nestle's Friskies business in the U.S. will be merged with Ralston's organization in St. Louis.

The Ralston Purina takeover comes after a quarter when the human-food business consolidated and companies like Quaker Oats, Keebler, Pillsbury, IBP and Snapple all changed. Through it all, Nestle, with $47 billion in sales, was mentioned as a possible bidder in the next deal.

But with yesterday's announcement, the enigmatic Swiss company revealed its strategy: Humans are done; animals are the play.

Indeed, analysts say dog and cat foods are two of the highest growth areas in the edibles industry, with overall sales increasing by more than 5% last year. The reason is simple: There were 129 million dogs, cats, horses and birds in the U.S. alone as of 1996, the last year for which data is available. While there were more than twice as many humans, they tend to be time-starved, cook less than ever, and are heading for the ubiquitous drive-through window. But animals still tend to eat at home.

Meanwhile, pets, much like humans, are benefiting from prosperity. People are indulging their dogs and cats with tastier (so they say), more nutritious, more expensive meals. Premium brands are an especially fast-growing area. Ralston makes plenty of pedestrian chow, such as Purina Puppy Chow. But it also produces Purina One, a brand whose sales are growing even faster than pet-food sales as a whole.

Pet owners may have less time for Fido or Spot, but at least they can feed them well. Nestle, by taking control of Ralston Purina, is poised to capitalize on that trend.